Will easy credit push sales growth against low-cost competitors?

Apple plans to entice more Chinese customers to buy its smartphones and other gadgets by offering purchases on credit, according to a report by the Financial Times. The company hopes new installment payment plans will help improve sales in China against cut-rate competitors, as China is viewed as one of Apple's top markets for growth.

The new program is analogous to those already offered in the US, Japan, Brazil, South Korea, and Singapore. It allows any Chinese customer with a credit card from China Merchants Bank and spending more than ¥300 ($48) to pay the balance in 12 monthly installments with zero interest. If the buyer wants longer repayments options, they can get 6.5 percent interest for 18 months, or 8.5 percent for 24 months. The offer is good for purchases that total up to a maximum of ¥30,000 ($4,800).

Apple has seen tremendous growth already in China, and CEO Tim Cook has commented more than once that the country is becoming one of its top markets. The country accounted for 15 percent of Apple's revenue in 2012. "[This] is really phenomenal when you think about it," Cook said during last quarter's financial analyst call. "That's up over $10 billion year on year."

Still, the company faces stiff competition from lower-priced alternatives from local vendors such as ZTE, Huawei, and others. Though Apple has so far benefitted from China's rising middle class, the FT noted that smartphone demand in China has been "increasingly driven by first-time buyers with lower incomes." Critically, smartphones aren't typically subsidized in China as they are in the US, as 70 percent of mobile users there are on prepaid plans.

This in essence is what the major carriers do in the US, except they don't make it as transparent.

They give you a $600 phone for $200, but it's not out of the kindness of their hearts.. in return they get guaranteed payments from you for 2 years, in the form of a contract. If you try to get out early, they hit you with a $100-$200 early termination fee.

I think a similar system would emerge in the US if the major carriers decided to ditch subsidies.

No matter what you do don't take credits even if they're zero interest loans. It's the most retarded idea. If you need to take a credit for a phone it means that you can't afford it.

As a person who generally doesn't do credit unless there's some logistical reason for it, I can see where you're coming from, but zero-interest kinda changes the nature of the game.

You're discounting the consumer who can pay outright but chooses not to because...whatever reason. It's zero-interest and maybe they don't like blowing their latte budget for the month if they can avoid it. Maybe they're very, very ambituous investors. Phones are what, $600? Or whatever much. You could leverage that a bit.

No matter what you do don't take credits even if they're zero interest loans. It's the most retarded idea. If you need to take a credit for a phone it means that you can't afford it.

Don't buy stuff you can't afford to. Be smart. Don't be a fool.

I completely agree, but in the end, they are paying almost the exact same amount as people on contracts in North America. Both consumers (NA and Chinese) will have the latest and greatest phones and the obligation to pay them off in a predetermined time period. I see fools on both sides of the pond.

my only issue with this is that companies are becoming banks, and then "too big to fail". this has happened to all US auto manufacturers. The last thing i would want is having to bail out AAPL if the Chinese stop making payments after the first two. I already have half of my money stolen from me via taxation for all the porkulus programs of which i will never see one cent worth.

As long as your money can earn more than 0% interest (not that easy to do in today's financial market), you are financially better off accepting Apple's subsidy and putting your purchase cost to work elsewhere.

Elsewhere of course does not mean gambling on the latest hot startup in Shanghai, no matter how tempting.

my only issue with this is that companies are becoming banks, and then "too big to fail". this has happened to all US auto manufacturers. The last thing i would want is having to bail out AAPL if the Chinese stop making payments after the first two. I already have half of my money stolen from me via taxation for all the porkulus programs of which i will never see one cent worth.

1) It did not happen to all US auto manufacturers2) They didn't 'bail them out' (ala freddie/fannie), they gave them a loan.3) The auto-manufacturers paid the loans back, with interest, making the tax payers money.

No matter what you do don't take credits even if they're zero interest loans. It's the most retarded idea. If you need to take a credit for a phone it means that you can't afford it.

Nonsense! If I can afford to pay for the whole phone at once, I would likely be foolish to do so if someone is going to offer me a 0% loan instead.

I can go do something better with that money in the meantime that earns interest.

the only problem is that the most interest you can earn is 0.5%, and thats with balances over 200K, result of too much money printing by the CB and "easy money for banks" policies (why would the banks pay you interest when they get money at 0 interest from the CB and then loan it out at 5% to you?)Especially knowing how financially irresponsible majority is, i'd prefer people pay full price on items such as phones and electronics.

my only issue with this is that companies are becoming banks, and then "too big to fail". this has happened to all US auto manufacturers. The last thing i would want is having to bail out AAPL if the Chinese stop making payments after the first two. I already have half of my money stolen from me via taxation for all the porkulus programs of which i will never see one cent worth.

1) It did not happen to all US auto manufacturers2) They didn't 'bail them out' (ala freddie/fannie), they gave them a loan.3) The auto-manufacturers paid the loans back, with interest, making the tax payers money.

If thats what they told you on TV doesnt mean its actually true. Google around and you will realize that this totally not the case. This is also why your taxes keep going up (and up and up and up).http://www.washingtontimes.com/news/201 ... /?page=allThere are many many many other links with how taxpayer lost on the triple - auto bailout, bank bailout and "affordable" care.... the whole thing is one big joke and the joke is on the taxpayer.

Something similar to this is a very common practice in Mexico, and I assume it's a very common practice in any third world country.

I am by no means considered poor here (I'm also way too far from a rich person), but even subsidized, my iPhone 5 and my boyfriend's Note 2 were too expensive to buy in one payment without hurting our spending for a while. So we took advantage of what most businesses that accept credit cards do here: we bought the phones spread on 12 monthly payments.

Banks here let businesses here offer 6-18 monthly payment options for a tiny interest rate to them, so you as a consumer can buy more expensive stuff without breaking bank and without paying interests (assuming you are good at paying your credit card bill on time of course).

my only issue with this is that companies are becoming banks, and then "too big to fail". this has happened to all US auto manufacturers. The last thing i would want is having to bail out AAPL if the Chinese stop making payments after the first two. I already have half of my money stolen from me via taxation for all the porkulus programs of which i will never see one cent worth.

1) It did not happen to all US auto manufacturers2) They didn't 'bail them out' (ala freddie/fannie), they gave them a loan.3) The auto-manufacturers paid the loans back, with interest, making the tax payers money.

actually Fannie and Freddie were not realyl bailed out. They are still paying 10% interest on those special dividends.

This in essence is what the major carriers do in the US, except they don't make it as transparent.

They give you a $600 phone for $200, but it's not out of the kindness of their hearts.. in return they get guaranteed payments from you for 2 years, in the form of a contract. If you try to get out early, they hit you with a $100-$200 early termination fee.

I think a similar system would emerge in the US if the major carriers decided to ditch subsidies.

France has gone that way big time since last year: the new 4th network operator does not offer subsidized phones, they offer phones with a consumer credit. It turns out a lot less expensive, by about 50%, than 2yr subsidized contracts, and you get to switch operators at will w/o hassle, an unlocked, un-crapwared phone. The incumbents have been forced to follow suit, and now 75% of phones are bought unsubsidized, but often financed.

my only issue with this is that companies are becoming banks, and then "too big to fail". this has happened to all US auto manufacturers. The last thing i would want is having to bail out AAPL if the Chinese stop making payments after the first two. I already have half of my money stolen from me via taxation for all the porkulus programs of which i will never see one cent worth.

1) It did not happen to all US auto manufacturers2) They didn't 'bail them out' (ala freddie/fannie), they gave them a loan.3) The auto-manufacturers paid the loans back, with interest, making the tax payers money.

actually Fannie and Freddie were not realyl bailed out. They are still paying 10% interest on those special dividends.

my only issue with this is that companies are becoming banks, and then "too big to fail". this has happened to all US auto manufacturers. The last thing i would want is having to bail out AAPL if the Chinese stop making payments after the first two. I already have half of my money stolen from me via taxation for all the porkulus programs of which i will never see one cent worth.

1) It did not happen to all US auto manufacturers2) They didn't 'bail them out' (ala freddie/fannie), they gave them a loan.3) The auto-manufacturers paid the loans back, with interest, making the tax payers money.

actually Fannie and Freddie were not realyl bailed out. They are still paying 10% interest on those special dividends.

If thats what they told you on TV doesnt mean its actually true. Google around and you will realize that this totally not the case. This is also why your taxes keep going up (and up and up and up).http://www.washingtontimes.com/news/201 ... /?page=allThere are many many many other links with how taxpayer lost on the triple - auto bailout, bank bailout and "affordable" care.... the whole thing is one big joke and the joke is on the taxpayer.

Actually my financial planner, with 30+ years of experience, who has been on Barron's top financial investors list for a few years now, broke it down in detail for me over dinner. So I'm going to go ahead and trust him over someone who uses "cronies" in an article headline. Maybe down the road I'll get an update from him when I go visit him for Father's day.

No matter what you do don't take credits even if they're zero interest loans. It's the most retarded idea. If you need to take a credit for a phone it means that you can't afford it.

Nonsense! If I can afford to pay for the whole phone at once, I would likely be foolish to do so if someone is going to offer me a 0% loan instead.

I can go do something better with that money in the meantime that earns interest.

If you can afford to pay for the whole phone at once why don't you "lose" one year or even two and save money on your own bank account or under your pillow. Once you're done saving go and buy yourself a phone and use the other money to do something that will make you rich.

The problem is not the loan it's the people who think that they can actually afford it, or think they're going to be fine without that much money on their account for the next twelve months. Some even have their damned coffee maker on a credit.

My point is if you can afford it you don't need a credit. A lot of people I know are head over heels in debts just because they thought they can live like that forever, so they started buying things on credit.

Good move by Apple. If the Chinese carriers aren't willing to subsidize their devices (which is essentially the same as a loan, except you have to keep paying even after the loan is paid off), then why NOT do it themselves? For the 1-year no-interest buyers, Apple sells a few (or a lot) more iPhones than they otherwise would have; for the 2-year interest payers, Apple also collects interest, increasing their profit margins. Win-win for Apple and for Chinese consumers who would otherwise have a hard time putting a little money aside every month for 1 or 2 years before they can buy the phone outright. And this doesn't just apply to iPhones - Macs and iPads, too, up to $4,800.

Apple's not a dominant smartphone vendor in China. All indications are that it won't ever be the dominant vendor. 0 interest loans are a nice idea, but it's not going to move the needle.

It might not end up in a huge swing in platform dominance, sure. But "it won't move the needle?" If this leads even 1% or 2% of customers to an Apple product instead of a competitor, the needle did move. A 1% swing doesn't seem that hard to fathom, does it? It could easily be a 5% change if the conditions are right.

If thats what they told you on TV doesnt mean its actually true. Google around and you will realize that this totally not the case. This is also why your taxes keep going up (and up and up and up).http://www.washingtontimes.com/news/201 ... /?page=allThere are many many many other links with how taxpayer lost on the triple - auto bailout, bank bailout and "affordable" care.... the whole thing is one big joke and the joke is on the taxpayer.

Actually my financial planner, with 30+ years of experience, who has been on Barron's top financial investors list for a few years now, broke it down in detail for me over dinner. So I'm going to go ahead and trust him over someone who uses "cronies" in an article headline. Maybe down the road I'll get an update from him when I go visit him for Father's day.

The only financial planner that has your best interest in mind is youself. And one more. You cant expect a man to make you understand something when his income depends on you not understanding it. March on, comrade, for the motherland.

Although the recent rumors of a cheaper iPhone for emerging markets have been firmly denied by Apple, I have to wonder if this "installment payments" option stood beside it, as Plan B. Or as Plan A, for that matter, with cheaper hardware also considered. Or perhaps this plan was leaked, but not in full, and was misconstrued. The timing is interesting.

No matter what you do don't take credits even if they're zero interest loans. It's the most retarded idea. If you need to take a credit for a phone it means that you can't afford it.

Don't buy stuff you can't afford to. Be smart. Don't be a fool.

This is essentially what you are doing when you "buy" a smartphone from a carrier at the discounted price with a 2 year contract. I don't know many people who go out and just buy the phone w/o a contract.

my only issue with this is that companies are becoming banks, and then "too big to fail". this has happened to all US auto manufacturers. The last thing i would want is having to bail out AAPL if the Chinese stop making payments after the first two. I already have half of my money stolen from me via taxation for all the porkulus programs of which i will never see one cent worth.

1) It did not happen to all US auto manufacturers2) They didn't 'bail them out' (ala freddie/fannie), they gave them a loan.3) The auto-manufacturers paid the loans back, with interest, making the tax payers money.

actually Fannie and Freddie were not realyl bailed out. They are still paying 10% interest on those special dividends.

I'm curious if this will fly in China because of culture. Almost all Chinese people I know exclusively purchase things outright instead of using credit* or debt, (even for cars most of the time!).

*And if they ever use credit cards, they never carry a balance.

Exactly. The Chinese are big savers. They are the opposite of what Americans have become. We here in the US and the west in general have grown accustomed to living on credit. I know MANY people who even now in these rough economic times STILL buy things on credit.

No matter what you do don't take credits even if they're zero interest loans. It's the most retarded idea. If you need to take a credit for a phone it means that you can't afford it.

Don't buy stuff you can't afford to. Be smart. Don't be a fool.

This is essentially what you are doing when you "buy" a smartphone from a carrier at the discounted price with a 2 year contract. I don't know many people who go out and just buy the phone w/o a contract.

I am one of those people. I didn't have to save money for my phone because I could afford it. But, it has happened to me with other stuff. For example I saved money for my laptop, my PC and my previous phone. In the long run if you consciously decide to save money for something you will most likely save the money a lot faster and you will appreciate the thing a lot more.

I'm curious if this will fly in China because of culture. Almost all Chinese people I know exclusively purchase things outright instead of using credit* or debt, (even for cars most of the time!).

*And if they ever use credit cards, they never carry a balance.

Yeah that could be a challenge. I took this small lecture-class (only 12 hours) in Chinese culture tailored for businesses imparted by a Chineses professor and it basically said the same as you are saying. He told us that credit cards were having a very difficult time breaking ground in China because people just don't like credit and debt.

However that may be changing over time, and it also doesn't mean that nobody is using credits, just that it's not commonplace. So maybe Apple is directing this specific sales policy to them, or it's expecting a change on credit spending.

No matter what you do don't take credits even if they're zero interest loans. It's the most retarded idea. If you need to take a credit for a phone it means that you can't afford it.

Don't buy stuff you can't afford to. Be smart. Don't be a fool.

This is essentially what you are doing when you "buy" a smartphone from a carrier at the discounted price with a 2 year contract. I don't know many people who go out and just buy the phone w/o a contract.

I am one of those people. I didn't have to save money for my phone because I could afford it. But, it has happened to me with other stuff. For example I saved money for my laptop, my PC and my previous phone. In the long run if you consciously decide to save money for something you will most likely save the money a lot faster and you will appreciate the thing a lot more.

But you are still have to pay for a contract if you actually want to use the phone. It's nothing like a laptop. Do you pay less on your phone service if you buy the phone outright and then add cell service? I buy nothing on credit. My phone I purchased at the discounted price. Since I don't make a habit of jumping from carrier to carrier it's not a big deal to get the phone this way.

If thats what they told you on TV doesnt mean its actually true. Google around and you will realize that this totally not the case. This is also why your taxes keep going up (and up and up and up).http://www.washingtontimes.com/news/201 ... /?page=allThere are many many many other links with how taxpayer lost on the triple - auto bailout, bank bailout and "affordable" care.... the whole thing is one big joke and the joke is on the taxpayer.

Actually my financial planner, with 30+ years of experience, who has been on Barron's top financial investors list for a few years now, broke it down in detail for me over dinner. So I'm going to go ahead and trust him over someone who uses "cronies" in an article headline. Maybe down the road I'll get an update from him when I go visit him for Father's day.

The only financial planner that has your best interest in mind is youself. And one more. You cant expect a man to make you understand something when his income depends on you not understanding it. March on, comrade, for the motherland.

If you read the last part, it was implied that my financial adviser is actually my dad. I'm not too worried about him ripping me off, comrade.